Consider Alternatives to Annuities in Retirement Years

Halverson, Guy, The Christian Science Monitor

Q I am near retirement. I will receive a small pension in
addition to Social Security. The two checks will total about 70
percent of my pre-retirement take home pay. To compensate for some
of the 30 percent drop-off in pay, I'm thinking of buying an
annuity. What type of annuity should I purchase? Should I buy it
from an insurance company, a bank, or elsewhere? Does an annuity
make sense for me?

J.M., New York

A If you go the annuity route, buy an immediate annuity that
makes payments as soon as possible, says Tim Shmidl, a financial
consultant with Prism Financial Group, in Overland Park, Kan.

He recommends that the annuity come with a guaranteed payout over
a fixed period (such as 10 years). That way, if you pass on
prematurely, your beneficiary will get something from the plan. The
annuity should also have a payment guaranteed for your lifetime.

Whoever sells you an annuity will have to buy the contract from
an insurance company, Mr. Shmidl says. So be sure you review the
insurer's financial rating. The higher the rating, such as AAA, the
better, he says.

The problem with an annuity, Shmidl says, is that you are
"turning your assets entirely over to someone else." Instead, he
recommends you consider managing the money yourself. "Set up a
balanced account, using both stock and bond products, and aim for a
return of at least 8 percent. That will beat the returns of most
fixed-rate annuities." Use the interest stream, leaving the
principal intact, he says.

By managing your own money, you retain control, can achieve
potentially higher earnings, and get at the principal without
penalty if there is an emergency, he adds. …

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